Question

Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Ashton Company prepared the following projected income statement: Sales $88,000 Total variable cost 23,760 Contribution margin $64,240 Total fixed cost 43,800 Operating income $20,440 Required: 1. Calculate the contribution margin ratio. Note: Enter as a percent, rounded to the nearest whole number. % 2. Calculate the variable cost ratio. Note: Enter as a percent, rounded to the nearest whole number. % 3. Calculate the break-even sales revenue for Ashton. Note: Round your answer to the nearest dollar. $ 4. How could Ashton increase projected operating income without increasing the total sales revenue?

Answer 1

1. 73 %

2. 27 %

3. $60,000

4. Ways to increase projected operating income without increasing total sales revenue :

1. Reduce the variable costs per unit
2. Reduce fixed overheads

Step-by-step explanation:

Contribution Margin Ratio = Contribution / Sales × 100

Where,

Contribution = Sales - Variable Costs

= $88,000 - $23,760

= $64,240

Then,

Contribution Margin Ratio = $64,240/ $88,000 × 100

= 73 %

Variable Cost Ratio = Variable Cost / Sales × 100

= $23,760 / $88,000 × 100

= 27 %

Break-even sales revenue = Fixed Costs ÷ Contribution Margin Ratio

= $43,800 ÷ 0.73

= $60,000

Ways to increase projected operating income without increasing total sales revenue :

1. Reduce the variable costs per unit
2. Reduce fixed overheads